Viewing OPEC's Future

The Organization of Petroleum Exporting Countries appears likely to grow in strength rather than weaken in the immediate future despite some problems and rifts facing the 13‐nation oil cartel at present, ac Economic cording to oil in dustry economists and executives and Government officials. The proposition that OPEC is facing imminent disintegration was described vari ously in interviews of experts as “wishful thinking,” “dream: ing” and “spitting in the wind.”

Nonetheless sonic analysts feel that OPEC may well face some serious threats to its unity near the end of this decade. Indeed, one highly placed, United States Government official believes that in four or five years OPEC's present. power to set prices will be all but eliminated.

Spurs to Notion

The notion that OPEC, the most successful cartel in history. is starting to deteriorate has once again begun to gain prominence because of the following:

¶The 9.5 cent price reduction on heavy crude oil announced last weekend by Iran. The Iranian price cut is probably the most significant price reduction by an OPEC member since the balance of power in the international oil trade swung to the producing nations in 1970. This is particularly true since Iran has been the major proponent within the cartel of continually higher crude oil prices.

¶Price shaving by some other OPEC members and fairly large price cuts by Iraq, considered a maverick within the organization.

¶Financial difficulties experienced by some members of the cartel, particularly Iran, despite massive inflows of revenues from oil.

Views Held Simplistic

Nonetheless, while admitting the validity of all these points the case for the imminent demise of OPEC would be categorized by most industry executives, energy analysts and petroleum economists as simplistic and based on a lack of understanding of the dynamics of the world oil situation.

Samuel Schwartz, senior vice president in charge of corporate planning for the Continental Oil Company, considered one of the best minds in the oil industry, contends that “Although OPEC continues to have tremendous unused capacity, the organization has already survived its greatest strain. The year 1975 was the real test, of the cartel's strength.”

A bank vice president, addressing himself to the same issue, commented, “OPEC fortunes are turning up; anyone who thinks differently is either uninformed or engaged in wishful thinking.”

Prof. M. A. Adelman of the Massachusetts Institute of ‘Technology, a leading oil economist notes: “To be sure there are cracks in OPEC solidarity but the important question is whether the cracks will spread. I don't see them spreading very much unless consumers adopt measures that will lead some OPEC members to expand out‘ put at the expense of other members. Prices can be lowered but the cartel cannot be destroyed, it can only be damaged.”

Many analysts believe that. OPEC's production decline has bottomed out and that the unused capacity, the major source of friction within the organization. will be reduced significantly although far from totally during the next two years.

The chief supports for this contention are the following:

¶The United States economy is beginning to show definite signs of a strong comeback and the European and Japanese economies are also beginning to turn around.

¶The world's largest oil consumer, the United States, will of necessity become considerably more dependent upon OPEC for its energy even without an economic upturn.

¶Maior new sources of crude oil such as the North Sea and the North Slope of Alaska will not contribute in any significant fashion over the next two years.

The Exxon Corporation, the world's largest oii company, is projecting a growth rate in the non‐Communist world demand for oil of 5 to 6 percent compared with a 5 percent decline in demand in 1975. Prior to the Arab embargo in October 1973 the historic energygrowth trend was about 7.5 percent a year.

Exxon anticipates a 7‐to‐8 percent growth in United States oil demand in 1976 from the 16.5 million barrel‐a‐day level in 1975. In 1974 Americans consumed 16.6 million barrels a day compared with 17.5 million barrels a day prior to the Arab embargo in 1973. Oil consumption in the United States traditionally grew at a rate of between 4 and 5 percent a year prior to the Arab embargo.

Other oil company and government figures on projected oil demand for 1976 and 1977 may differ from Exxon's but almost all analyses anticipate some growth this year after two years of decline.

The greater growth in demand for oil in the United States will result partially from the sharper acceleration in the American economy than in Europe but a decline in domestic American natural gas production will also play a role, according to John Lichtblau, director of the Petroleum Industry Research Foundation.

The decline in natural gas production in the United States will mean that the United States will have to add about 500,000 barrels a day of oil to its energy‐demand mix since oil is the only substitute for natural gas in most instances.

Mr. Lichtblau also points out that production of oil from American wells is expected to decline in 1976 for the sixth consecutive year meaning the necessitation of an additional 400,000 to 500,000 barrels a day of oil imports.

Beyond this, Canada, one of the traditional suppliers of oil to the United States market, will in the next year reduce its contribution to this coun try's supplies sharply. In 1973 1Canada exported about 1 million barrels a day to the United States. This figure fell to an. average of 791,000 barrels a day in 1974 and 600,000 barrels a day in 1975. In 1976 Canada is expected to send down an average of about 500,000 barrels a day although by the end of the year the Canadian contribution could drop to some 250,000 barrels a day.

This decline from natural gas loss, domestic production falloff and Canada's diminished contribution will have to be made up from somewhere. “OPEC is the only source', according to Mr. Lichtblau. “Anyone who believes different is dreaming.

A vice president of a major international oil company commented, “We need about 1.2 million barrels more of foreign oil even if the economy doesn't turn up. The United States has to keep running just to stay in the same place and the person who claims that the oil can be obtained anywhere but from OPEC is ‘spitting in the wind.’ “

Thus it would seem that the consuming nations of the world are truly between Scylla and Charybdis. If their economies recover OPEC gets strongler. If their economies decline OPEC weakens. Under present circumstances it could mean that only a world depression would suffice to completely crack the OPEC blcc.

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A version of this archives appears in print on February 19, 1976, on Page 61 of the New York edition with the headline: Viewing OPEC's Future. Order Reprints|Today's Paper|Subscribe